Barclays goes back to the future, and it cuts the dividend

00:00, March 02nd 2016
· By Michael Hewson

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Since the departure of CEO Antony Jenkins last summer the bank appears to have lost its way, not altogether surprising given that it took 5 months to find a successor.

The appointment of Jes Staley, an ex JP Morgan investment banker who took over the reins in December, has thus far failed to stabilise a sinking share price, but today Mr Staley appeared to go back to the future by announcing plans to simplify the bank.

Since the departure of Mr Jenkins, which initially saw a move higher in the share price, investors have voted with their feet as the share price has fallen from peaks of 290p to lows of 148.3p in the middle of last month.

Since then the bank has settled with US regulators over the FX pricing scandal and dark pools, as it seeks to draw a line under the various litigation scandals that have dogged the bank over the past few years.

Amidst this swirl of uncertainty there was intense speculation that we would see some significant restructuring when the bank announced its full year numbers today, and the bank appears to have delivered on that speculation today.

In January the bank reported it was retreating from some areas of its global investment banking operations including the loss of 1,000 jobs worldwide. The main focus was in Asia, including the winding up of its Australian operations, while the reports that the bank was looking to sell 62.3% of its stake in Barclays Africa, were confirmed this morning.

The bank’s full year results came in below expectations with adjusted pre-tax profits, after stripping out one off items, coming in at £5.4bn, well below expectations of £6.4bn.

Including the one off items the numbers showed a profit of £2.1bn, as the bank set aside further provisions for mis-selling PPI of £1.45bn and lower revenues at the investment bank, with Q4 showing a unadjusted pre-tax loss of nearly £2bn. The bank also announced it would be cutting its dividend by more than half in 2016 and 2017 to help boost its capital buffer, which currently sits at the lower end of the scale relative to its peers.

The bank also announced it would be splitting into two divisions as part of a restructuring program and continuing to unwind its non-core assets.

The two divisions reminiscent of a simpler structure back in the 1980’s will be Barclays UK, which will be ring fenced from the rest of the group, and Barclays Corporate International, as it looks to focus on its traditional businesses of consumer and investment banking, in London and the US, where revenues, particularly in its Barclaycard divisions remain strong.

Recent results from the European banking sector and Deutsche Bank in particular had prompted concerns about Barclay’s results, given the similarity in their banking models, and while it turns out that the bank is better shape than Deutsche it still faces a number of challenges to become more resilient.

The bank isn’t likely to be helped by the prospect of lower for longer interest rates, but given the share price is already near its multi-year lows it remains to be seen as to whether we could see a revisit of last month’s lows.

It would appear that the bank looks set to call time on its global ambitions over the next few years, and it could in time, see it become a much more resilient, safer and focussed bank.

The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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